19656

VALUE ADDED TAX – Default Surcharge – Payment of VAT made late because of difficulties with internet banking – Held not a reasonable excuse for late payment – Issue of whether there was a pre-existing surcharge period as a condition of liability to the surcharge – This depended on whether the relative surcharge liability notice had been served on the Appellant within the meaning of section 59(3) VATA – Found as a fact that it had been so served – Appeal dismissed

MANCHESTER TRIBUNAL CENTRE

	DIESPECKER (GRP) LTD.	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S 
	REVENUE AND CUSTOMS	Respondents

			Tribunal:	JOHN WALTERS QC (Chairman)

Sitting in public in North Shields on 11 May 2006

Miss J. E. Laidler, Company Secretary, appeared for the Appellant

Mr. Charles Morgan instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1.	Diespecker (GRP) Limited (“the Appellant”) appeals with respect to its liability to a default surcharge calculated at 2 per cent. of the VAT liability of £43,128.50 returned by the Appellant in respect of the VAT period of three months ended 30 September 2005, i.e. £862.57.
2.	Liability to a default surcharge arises in the circumstances specified by section 59 VAT Act 1994 (“VATA”).  If a taxable person is late with his return or the amount of VAT shown as payable on the return, that person is regarded as being in default in respect of the VAT period concerned.  
3.	If a taxable person is regarded as being in default in respect of a VAT period and the Commissioners serve a surcharge liability notice on him specifying a surcharge period (usually slightly less than 12 months), then that person is, as it were, in the surcharge system for that period – which will be extended if he is again in default during the period.  Liability to a default surcharge arises if there is a default in respect of a VAT period which ends at or before the expiry of an existing surcharge period already notified to the taxable person concerned – section 59(3) VATA.
4.	Service by the Commissioners on the taxable person of a surcharge liability notice setting up the surcharge period is therefore a necessary prerequisite of a liability to a default surcharge.
5.	In this case, the facts relied on by the Commissioners are as follows:
6.	Their records (the Schedule of Defaults put before the Tribunal) indicate that the Appellant was late with its return in relation to the VAT period ending 30 June 2005, which should have been received by 31 July 2005 and was in fact received on 5 August 2005.  The Schedule shows a surcharge liability notice as having been issued on 12 August 2005.  
7.	The return for the next VAT period (ended 30 September 2005) was also late.  It should have been received by 31 October 2005 and was in fact received on 1 November 2005 – thus it was one day late.  The VAT was received several days later.  These circumstances, in the Commissioners’ submission, create liability for the surcharge calculated at 2 per cent. of the VAT shown due on the later return.
8.	The Tribunal heard the evidence of Miss Laidler, the Appellant’s Company Secretary.  She is responsible for VAT compliance for the Appellant.  She sought to show a reasonable excuse for the late payment of the VAT due in respect of the VAT period ended 30 September 2005 (cf. section 59(7)(b) VATA), by reference to the fact that she tried to arrange payment of the VAT through internet banking, but was unable to do so.
9.	She said that she had spoken on the telephone to a lady called “Anna”, who, the Tribunal infers, was answering the Commissioners’ national advice line.  Miss Laidler was quite definite that the call had been at 2.17 p.m. on 9 November 2005.  Miss Laidler said that she had informed Anna that the VAT payment for the quarter ended 30 September 2005 was overdue (because the Appellant had unsuccessfully attempted to make timely payment of the VAT via internet banking) and asked advice on the quickest way of making payment.  Miss Laidler told the Tribunal that Anna had told her that the Appellant would receive a warning letter about the late return but that she had assured her that there would be no surcharge on this occasion, but that there would be if there was a later period when the return was late.  Anna had given Miss Laidler bank details to assist payment, and advised her alternatively to make payment by cheque.  Miss Laidler posted a cheque on that same day, 9 November 2005.  She accepted that the payment of VAT for the VAT period ended 30 September 2005 was late.
10.	Miss Laidler said that she had never received a surcharge liability notice in respect of the VAT period ending 30 June 2005, and indeed that the return for that period was not made late.
11.	When cross-examined by Mr. Morgan, she was taken to a copy of the return for the VAT period ended 30 June 2005 which contained her signature against the date: 31 July 2005.  It also had a date stamp showing 5 August 2005 as the date of receipt by the Commissioners.  31 July 2005 was a Sunday.  Miss Laidler accepted that it is likely that it was posted on Monday 1 August 2005, and agreed that it was a late return. She said that she would have expected the Commissioners to overlook the late return if it was received on 2 August 2005 and would not have expected a surcharge liability notice to be issued.  When pressed by Mr. Morgan, she accepted that the Commissioners were entitled to issue a surcharge liability notice, but she asserted that as a matter of fairness it was not morally right to do so.  She said she had never seen the surcharge liability notice.
12.	Miss Laidler said in cross-examination that she had waited until 9 November 2005 to telephone the Commissioners’ national advice line because it had been on that date that she had heard from the internet bank that she would not be able to make the payment via internet banking.  She said that her conversation with Anna on 9 November 2005 had not been particularly lengthy, but that she (Anna) had raised the point that previous late returns would have affected the matter and that she (Anna) had checked that there had been no late returns in the past.
13.	Mr. Morgan, for the Commissioners, rightly pointed out that this answer given in cross-examination was the first time that Miss Laidler had said that there was any communication with Anna about previous late returns.
14.	A Surcharge Liability Notice Extension and assessment to a surcharge of £862.57, relating to the VAT period ended 30 September 2005, and dated 11 November 2005, was received by the Appellant.  Miss Laidler called the Commissioners’ national advice line again on 14 November 2005 and explained that a cheque for the VAT for the VAT period ended 30 September 2005 had been sent to the Commissioners.  
15.	A director of the Appellant, Mr. J.E. Laidler (Miss Laidler’s father), who also gave evidence to the Tribunal, sent a fax to the “D[efault] S[urcharge] Appeals Team” of the Commissioners on 25 November 2005 rehearsing the substance of Miss Laidler’s evidence set out above and stating “we were told that we would probably receive a warning for the late return but that we would not be penalised”.  The fax asked for sympathetic consideration “with the initial teething problem” and for the surcharge to be rescinded on the basis that this was the only occasion of late payment and an assurance that payment would be made in future on time.
16.	Mr. Laidler followed the matter up with a telephone call to the D S Appeals Team on 10 January 2006 and spoke to Officer Mackowski.  He replied in a letter of the same date stating that he had made enquiries regarding the conversation on 9 November 2005 and that because the conversation had taken place after the due date for payment of the VAT (which was 31 October 2005) he could not withdraw the surcharge.  As a result of receipt of this letter, the Appellant appealed to this Tribunal on 20 January 2006.
17.	Mr. Laidler also said that he had not seen the surcharge liability notice dated 12 August 2005, although he saw most of the post, though not first hand (it had been opened by someone else first), and he would not say on oath that the Appellant did not receive the surcharge liability notice dated 12 August 2005.  It is possible that it was received and then went astray inside the office.
18.	Having regard to the fact that the conversation between Miss Laidler and Anna did not take place until well after the time when the VAT relative to the VAT period ended 30 September 2005 should have been paid, the Tribunal does not regard any assurances that Anna may have given Miss Laidler as grounds for a reasonable excuse for the late payment of VAT relative to that VAT period, within section 59(7)(b) VAT.  The Tribunal finds that there was no reasonable excuse for that default.
19.	As the hearing developed it became clear that the best argument available to the Appellant was that the surcharge notice, under which the surcharge complained of was charged, was not served at a time when there was a pre-existing surcharge period current, which had been specified by an earlier surcharge liability notice served on the Appellant.
20.	The Commissioners, of course, maintain that there was a pre-existing surcharge period current, which had been specified by the surcharge liability notice dated 12 August 2005.  The Appellant, through Miss Laidler and Mr. Laidler, contended that that surcharge liability notice had never been seen by them and, therefore, had never been served, within the meaning of section 59(2) VATA.
21.	  The Tribunal invited Mr. Morgan to make any further submissions he wished on what is meant by service of a surcharge liability notice within the meaning of section 59 VATA.  In response to this invitation, he sent an email to the Tribunal on 12 May 2006 as follows:
“Having taken instructions on the matter I can now indicate the position of the Commissioners to be that if the Tribunal were to find as a fact that the surcharge liability notice dated 12 August 2005 was not delivered in the post to the Appellant’s address then the Commissioners would not seek to resist the appeal further …”
22.	In these circumstances it is for the Tribunal to find as a fact whether or not the surcharge liability notice dated 12 August 2005 was delivered in the post to the Appellant’s address, and thus effectively “served” for the purposes of section 59(3) VATA.
23.	On the one hand, having seen the Commissioners’ records, the Tribunal finds that the surcharge liability notice was committed to the post to be delivered at the Appellant’s address.  It is, therefore, probable that it was delivered there.
24.	On the other hand, both Miss Laidler and Mr. Laidler deny seeing it. Mr. Laidler accepted that it is possible that the surcharge liability notice was delivered to the Appellant’s address, but went astray inside the office.  The Tribunal finds on the balance of probabilities that this is what happened.  Accordingly the surcharge liability notice dated 12 August 2005 must be treated as having been served on the Appellant.
25.	In the result the appeal is dismissed.

JOHN WALTERS QC
CHAIRMAN

Release Date: 30 June 2006

MAN/2006/0098

££Diespecker (GRP) Ltd v  Revenue & Customs [2006] UKVAT V19656 (30 June 2006)